...Introduction Smackey Dog Foods, Inc. is a private own dog food manufacturer. The company was started by three sisters in the suburbs of Chicago. Smackey’s clientele are veterinarians, local pet stores and groceries stores. Smackey is in the process of expansion, and the purchase of new equipment produced the demand for an independent audit. The company has two divisions, one produces regular, and the other, gourmet dog food. Keller CPA’s task is to analyze Smackey’s business environment, perform an audit and issue an opinion on Smackey’s financial statements to be used to secure a loan at the local bank for the purchase of additional manufacturer equipment. Analysis At the Keller CPA Firm we follow all SEC, and other agencies, rules and regulations. According to Arens, Elder and Beasley (2010), the SEC has influence on setting GAAP and other disclosures, it has authority to develop requirements to guide auditors and CPAs to better design and prepare audits, and financial statements. Not all SEC rules will be applied to Smackey Dog Foods, Inc.’s audit, because this company is not public held, but the auditors will follow SEC’s rules in regard to private companies and determine if the financial statements are fairly presented. (Arens, Elder & Beasley, 2010, p.31). Auditors accumulate evidence in order to reach a conclusion about the financial statements. To issue an opinion the auditor must determine if the financial statements are fairly presented or not, or is unable to even...
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...Smackey Dog Food Company Smackey Dog Foods, Inc is a privately held corporation specializing in natural dog food, both regular and gourmet brands. Smackey Dog is not publicly traded which is evident because they are not following many of the standards that are required through Sarbanes Oxley. Since this is a privately run corporation, they are not required to adhere to the SEC regulations, but adherence to these regulations would actually help Smackey Dog to be more efficiently run and would help them have a better handle on their operations. Although the company is not required to follow SEC regulations, the auditors are still required to follow the audit standards in place with the passing of Sarbanes Oxley. Audit planning is very important. The initial audit planning should be done in the early stages of the audit. The auditor must determine whether to accept the client. It is late in the year to accept new clients, and there are also some major issues with the way the company is being run, in spite of these challenges; Keller CPA’s has agreed to accept Smackey Dog as a client. The second stage in audit planning is to determine why the audit is needed. Since Smackey Dog is not publicly traded, there is no law that requires the company to get a yearly audit. This audit is needed because Smackey Dog is attempting to qualify for a bank loan. Sarah, the CEO of Smackey Dog has met with her banker to attempt to qualify for a $150,000 loan to expand the facilities...
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...how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. Solution: The SEC does not have direct influence over the audit of Smackey Company because, Smackey is not a public held organization, they do not have assets in excess of $10 million, and they do not have over 500 stockholders; which are the requirements for public and privately held companies. The SEC does have indirect influence over the audit because all companies, whether public or private are required to comply with General Accepted Accounting Principles (GAAP) and the SEC plays a significant role in influencing these standards. The auditors, while not bound by SEC rules they are required to obey specific audit rules and guidelines as outlined under the the American Institute of Certified Public Accountants (AICPA). The AICPA is responsible for establishing auditing and attestation standards for private companies in the United States and for enforcing a code of professional conduct for its members. The code is comprised of six principles that the auditors must adhere to. The principles are: responsibilities, the public interest, integrity, independence and objectivity, due care, and the scope and nature of services. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: During the initial planning of the audit of Smackey Dog Food, the auditors should discuss the following...
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...Introduction My role at Smackey Dog Food is to apply the audit procedures and objectives to this company. A cursory examination reveals that there are many areas where Smackey's accounting practices can be improved. At times, there are faults with the techniques that are being used. At other times, there are faults just as much with the control systems. Inadequate control systems are often the cause of problems with a company's accounting practices, and ensuring that proper controls are in place is one of the most important roles of the auditor (CSU, 2009). In this analysis, the issues will be taken one at a time, and then some final overarching recommendations will be made to ensure that not only are these problems addressed but that systems are in place to ensure that there are no further problems. Problem #1 – Waste and Margins The one-serving packages that are freshly manufactured are sold at three times the price of their other products. Waste is an issue for this product, in part because of the necessity of using fresh ingredients. From a business perspective, Smackey can set its prices at whatever level it feels is appropriate for the market, but the company should have a sense of whether or not this product is making money. Thus, the company must be able to measure this waste in order to ensure that it makes money on this product. High waste is a symptom of poor controls. A management accounting system is recommended, for example contribution margin...
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...Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. The Securities and Exchange Commission assists in providing investors with reliable information upon which to make investment decision. The SEC has considerable influence in setting generally accepted accounting principles and disclosure requirement for financial statements as a result of its authority for specifying reporting requirements considered necessary for fair disclosure to investors. The SEC has power to establish rules for any CPA associated with audited financial statement submitted to the commission. The SEC adopted rules strengthening auditor independence in January 2003 consistent with the requirements of the Sarbanes-Oxley Act. The SEC rules further restrict the provision of nonaudit services to audit clients, and they also include restrictions on employment of former audit firm employees by the client and provide for audit partner rotation to enhance independence. Although Smackey Dog Foods, Inc. is nonpublic companies, independence rule is applied same as public. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Initial audit planning involves four things, all of which should be done early in the audit: 1. The auditor decides whether to accept a new client or continue serving an existing one. Smackey is a new client for Keller CPA. Before they accept the audit, Keller...
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...Smackey Dog Foods, Inc Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. Solution: The SEC assists in providing investors with reliable information upon which to make investment decision. The Securities Act of 1933 requires most companies planning to issue new securities to the public to submit a registration statement to the SEC for approval. The Securities Exchange Act of 1934 provides additional protection by requiring public companies and others to file detailed annual reports with the commission. The SEC has considerable influence in setting generally accepted accounting principles (GAAP) and disclosure requirement for financial statements as a result of its authority for specifying reporting requirements considered necessary for fair disclosure to investors. The SEC has power to establish rules for any CPA associated with audited financial statements submitted to the commission. With Smackey Dog Food, Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: Audit Planning consist of the following: 1. The auditor decides whether to accept a new client or continue serving an existing one. This determination is typically made by an experienced auditor who is in a position to make a important decisions. The auditor wants to make this decision early, before incurring any significant cost that cannot be recovered. With...
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...------------------------------------------------- Smackey dog food Auditing [Date] tamucc [Company address] [Date] tamucc [Company address] Smackey Dog Food is a family owned and operated company that began as a dream of two sister’s and its meager beginnings were established in the kitchen of their home. The business has become more profitable and thus the sisters have a need to expand the business into a larger facility. There was a need to hire additional employees in order to meet the demand for the increase in Smackey Dog food orders. With the increase in sales the women decided to embark on a new product line and open a “Boutique Division that was named Best Boy Gourmet” that specialized in freshly manufactured, one-serving packages meant for consumption no later than 3 days after consumption. There is a huge demand for this product but waste is an issue. The dog food manufacturing industry requires many key figures with regards to operations of the warehouse. Depending on how large the warehouse is there are a lot of steps from the initial order from the customer until it is finally delivered to the customer. When an order is placed there is an immediate need for a lot of employees to fill an order especially if they are using an assembly line. Fork lift drivers bring the raw materials such as the fiber. The dog food depending on the type, for example if it is canned dog food or bags is placed for the employees of the assembly line to access it...
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...Smackey Dog Food Inc. has hired my firm and me, Keller CPAs, to complete an audit of their company and its financial statements. To continue being the successful company that they are, Sarah, Kim, and Jillian need to get better control of the company in its aspects of general business including inventory control and accounting. From the looks of things now, they are failing and headed in a downward spiral if they way things are happening continue. One of our jobs as an auditing company is to locate and address any issues and concerns with the audit and how we will proceed. Upon first glance at Smackey Dog Food, there are a couple of key issues and concerns that the company is currently experiencing. The first prominent issue that I see with the company is a serious lack of internal control starting from the very top. No one person seems to be in control of anything and the different areas of the business are being run as the sisters see fit which is not a good business practice. Sarah is trying to secure a bank loan using the accounts receivable as collateral and basing whether they will be able to pay down the loan by Jillian’s sales team projections. Problem there is that Jillian’s sales team is earning commissions on sales that they are not even getting because Jillian wants to be liked and costing the company about 11% average in profits. If the sales projections are off, they run the risk of not being able to pay back the loan like they assumed and the expansion that is desired...
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...Smackey Dog Foods, Inc. has been a very successful dog food manufacturer for the past few years, but along with their success, they have many issues surrounding their management styles and accounting techniques. These issues are a result of management’s inexperience and lack of knowledge of the proper controls related to running a business and the entire accounting aspect. Q1 Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. SOLUTION: Although Smackey Dog Foods, Inc. is not a publicly traded company the SEC has a significant influence on their audit. During the audit, Keller CPAs will still need to follow the auditing standards put in place by the SEC. AICPA principles will be followed, ensuring that the Keller CPAs are independent of the client and free of conflicts of interest when performing professional responsibilities. Q2 Discuss the essential activities involved in the initial planning of an audit. How do these all specifically relate to the Smackey Dog Food client? SOLUTION: 1. Understand the client’s business and industry. Keller CPAs can use its experience from auditing other manufacturing companies in the audit of Smackey Dog Foods, Inc. The essential part of this step is for the audit team to learn and understand as much as possible of the client’s business and industry. All related parties will be identified in this stage of the planning as well. 2. Assess client business risk. The business risk involved...
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...Analysis of the Smackey Dog Foods, Inc. Audit AC555 – External Auditing Devry University Professor Dorothy Brandt Keller Graduate School of Management Introduction Smackey Dog Foods, Inc. is a private own dog food manufacturer. The company was started by three sisters in the suburbs of Chicago. Smackey’s clientele are veterinarians, local pet stores and groceries stores. Smackey is in the process of expansion, and the purchase of new equipment produced the demand for an independent audit. The company has two divisions, one produces regular, and the other, gourmet dog food. Keller CPA’s task is to analyze Smackey’s business environment, perform an audit and issue an opinion on Smackey’s financial statements to be used to secure a loan at the local bank for the purchase of additional manufacturer equipment. Analysis At the Keller CPA Firm we follow all SEC, and other agencies, rules and regulations. According to Arens, Elder and Beasley (2010), the SEC has influence on setting GAAP and other disclosures, it has authority to develop requirements to guide auditors and CPAs to better design and prepare audits, and financial statements. Not all SEC rules will be applied to Smackey Dog Foods, Inc.’s audit, because this company is not public held, but the auditors will follow SEC’s rules in regard to private companies and determine if the financial statements are fairly presented. (Arens, Elder & Beasley, 2010, p.31). Auditors accumulate evidence in order to reach a...
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...| Smackey Dog Foods, Inc. | Pre Audit Analysis | | Nikki Leach | 4/17/2012 | | Smackey Dog Food is a privately held company started by three sisters in Chicago, IL. Smackey manufactures a natural dog food and distributes it to pet stores, small grocery stores, kennels and veterinarians. The company has also started another line of high end single serve pre-packaged dog food they only sell through their website. Smackey is looking to expand and therefore needs to take out another loan; they currently have a loan that is secured by manufacturing equipment purchased with the money. The bank is asking for an audit of financial statements to determine if they will approve a second loan. The company wants to use receivables to secure the loan. We have been hired to conduct an audit of the financial statements. The SEC has no influence over the audit since Smackey is a private company; however, since Keller CPA is auditing the financial statements we will be following GAAP. Although the SEC has no influence we will be following any guidelines put forth by the SEC in regards to private companies to determine the financials are presented fairly. In the future if Smackey should decide to go public there are numerous steps that will need to be followed. We have assigned Peter as the audit manager and he will be assisted by Ben and Maureen. They will assess the client and plan the audit. The initial planning involves four things to be done...
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...SMACKEY DOG FOODS, INC. Smackey Dog Foods, Inc., is a privately owned dog food manufacturing company, which was started by three sisters, Sarah, Kim, and Jillian, in the kitchen of their suburban Chicago home. They started by manufacturing a natural dog food with ingredients they bought from a local grocery store. These products were discovered by local pet stores and small grocery stores which also became distributors of their products. A larger facility was then needed as the demand steadily increased for their products. With this expansion the sisters were required to hire more workers and manage a growing company. Compared to their competitors’, Smackey Dog Foods, Inc. sales were on an upward growth trend. With increasing sales from the prior year, the sisters opened a boutique division and called it Best Boy Gourmet. Sarah, the president and general manager, has met with a banker to request a loan for $150,000 to expand the facilities and equipment. Their first loan for $150,000 was used to purchase industrial size food production equipment, which was also used as security for the loan. With this new request for a loan from the bank, they are now requiring an audit of the corporate financial statements of Smackey Dog Foods, Inc. before they will approve the new loan. My firm, Keller CPAs, has been hired to conduct an audit of Smackey’s financial statements and form an opinion about their financial statements, which will be used by the bank to help secure the...
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...audit of Smackey Dog Foods, Inc. Solution: The SEC (Securities and Exchange Commission) has substantial influence on the audit of Smackey Dog Food, Inc. This can be seen in the audit standards that have to be followed by the established independence of the auditors involved in the Smackey audit. In the audit of public listed companies which includes Smackey, the auditors need to observe several principles. Independence is one of the six principles exhibited by the AICPA and the others include responsibilities such as the public interest, integrity, objectivity and independence, due care, and scope and nature of services. An audit team is required to be objective and independent with regard to professional responsibilities and by being independent in fact and appearance when providing auditing and other attestation services. Under the Sarbanes – Oxley, auditors have to be objective and independent otherwise legal sanctions can be pursued and incurred. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: The following are several essential activities involved in the initial planning of an audit and how they are specifically related to Smackey Dog Food, Inc. : 1. First understand the client’s business and industry. The audit firm can get the full benefit of its experience in auditing other food manufacturers in planning and doing the audit for Smackey. Members...
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...Smackey Dog Food Laton Berry AC555 Due June 21, 2011 Jean Inabinett Introductory In order for me to audit this company, they would first have to produce a financial statement for me to audit. I will be providing what I have researched and what steps I would take if I were to audit Smackey Dog Food by using some audit procedures, tests, and reports. I will discuss if there were any rules violated and why. I will also discuss if there are any risk, and legal liability involving Smackey Dog Food. I will gather all of the evidence I find to determine my conclusion in what audit opinion I will give them. The audit opinion will be based off how high of material I think will affect Smackey’s Dog Food financial statements in more than on type of account or in a high value in dollars. SEC Influence over the Audit of Smackey Dog Food Smackey Dog Food is required to file a Form 10-K annually within 60 to 90 days after the close of each fiscal year also might include audited financial statements. If Smackey is a publicly held company than, they are required to file a Form 10-Q, which contains certain financial information and requires timely auditor reviews. The financial statements required are Smackey’s balance sheet from the last fiscal year, and income statement from the last quarter. They do not have to report their statement of cash flows; the SEC does not require this. The Initial Planning of the Audit The first step would be to conduct a new client investigation done...
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...Questions: Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. Solution: Since Smackey Dog Foods, Inc (“Smackey”) is not a publicly traded company, it would not be subject to SEC regulations and therefore would not need to file the required reports under the securities acts. It would however have indirect impact on the audit of Smackey due to the SEC’s influence in setting generally accepted accounting principles (“GAAP”), the required disclosures for financial statements and any major changes proposed by the Financial Accounting Standards Board (“FASB”). Nonetheless, during the audit of Smackey, Keller CPA is subject the six generally accepted auditing standards established by the Auditing Standards Board (“ASB”) under the Accounting Institute of Certified Public Accountants (“AICPA”) which includes the ten standards of auditing. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: Audit planning includes eight major parts, of which the first seven are intended to help Keller CPA to establish the eighth, which is to develop an overall audit plan and audit program. They are as follows; Acceptance of the client and perform initial audit planning – Keller has already agreed to accept this client, although they should still try to assess Smackey with regards to other audit client of theirs. They should go through the usual...
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